Women don’t need financial information in pink folders or their financial adviser to wear a skirt, but they are increasingly taking more financial decisions and need sound advice from a trusted source on how best to manage their money.
Heidi Dreyer, head of corporate sales at Prudential Investment Managers, told a recent Women in Finance network breakfast in Cape Town that women form the biggest emerging market in the world and advisers need to adapt to serve them.
Women are controlling more and more of the world’s wealth. This is not only because more women are working and often becoming the main earners in their households, but because a growing proportion of legacy wealth is being left to women thanks to longevity and shifting demographics.
Dreyer says women are no different to men in needing to be educated about financial matters or requiring competent and professional advice from an adviser who understands their needs, but she does tell advisers that you, as a female client, are likely to be a little different from the traditional male client, and advisers should be prepared for that.
Many women want to, and should be encouraged to, ask more questions about financial matters, she says. Women generally will not invest in something that they don’t understand.
If your adviser is not prepared to answer all your questions to your satisfaction, you should look for one who does, because advisers will increasingly have to adapt to serve women.
Dreyer says surveys of women consumers consistently show that women worry a lot more than men. “It is in our DNA, part of the nurturing instinct,” she says.
However, by educating yourself or taking advice, you can overcome your concerns and balance the risks of investing with the rewards, she says. And a good financial adviser will help you to overcome these fears and concerns, instead of preying on them.
Research shows that women tend to take less investment risk than men, as they tend to keep a lower proportion of their money in higher-growth assets such as equities.
But it is very important for women to take appropriate investment risk when investing, because they typically live six to eight years longer than men and retire, on average, with two-thirds less than men as a result of earning less and taking career breaks to raise children.
Equity has long proved to be the best place for long-term investors to put their money.
Tracy Jensen, the chief product architect of 10X Investments, says the average life expectancy of a 65-year old South African woman is now 85.9 years, more than four years longer than the average man.
Jensen says people often mistakenly believe that investing in high-equity portfolios always entails greater risk, but they forget that over time, the risk of investing in equities decreases.
She says that the range of real (after-inflation) returns of each five-year period between 1900 and 2013 show that a low-equity multi-asset fund (with less than 40 percent equities) would have given a return of between minus 13 percent and 14 percent, while a high-equity fund (between 60 and 75 percent in equities) would have low returns of minus 14 percent but positive returns of as much as 26 percent.
“This means, for the long-term investor, a high-equity portfolio actually has the same or less risk than a low-equity portfolio, but double the upside potential,” Jensen says.
Dreyer says women are typically more cost-conscious than men, because they are used to running the household budget. Being cost-conscious about your investments means looking for transparent investment options that meet your financial needs, she says.
Each percentage point of fees, charged as a percentage of your assets, that you can save, adds up to 30 percent more money at retirement over a 40-year savings period, Jensen says.
Longer lives, on average, mean women need larger retirement savings than men, and for this reason it is important that women start saving as early as possible.
Starting early will give you more of the benefit of compounding returns, which will mitigate the effects of earning less and taking time off during child-rearing years.
Yolande Botha, a finalist in this year’s Financial Planner of the Year Awards, says women who follow financial advice when they are young are much better off than those who get advice only when they are older.
A practice like Galileo Capital charges about R20 000 to draw up a comprehensive financial plan. But Botha says that if you do not have the money for a financial plan and your finances are relatively simple, many practices will find a way to assist you. She says Galileo has set up a robo-adviser to help younger clients with uncomplicated financial affairs to set up their first investments. The practice will need an hour-long consultation with you (costing about R1 500) to give you initial advice and point you in the right direction, and will then enable you to help yourself through its robo-adviser.
WIVES MUST GET INVOLVED
If a man takes a leading role in a couple’s financial affairs and consults an adviser, the adviser should insist that the woman also takes part in the consultation, women in the financial services industry suggest.
As a wife, you are likely to outlive your spouse. For the sake of yourself and your children, you should get to know and trust an adviser and be involved in financial decisions, even if your husband feels that the finances are his responsibility.
A good adviser should encourage a male client to bring his wife or partner to at least one meeting a year, Heidi Dreyer, the head of corporate sales at Prudential Investment Managers, says. It’s too late to get to know your adviser after your spouse’s death. Plans need to be in place and the relationship established to alleviate some of the stress when a spouse dies.
Financial planner Yolande Botha says the wives of men who try to control them by not allowing them to take part in financial decisions do not learn how to manage money, yet one day they may be alone and have to do so.
A good adviser will open the discussion with a couple on issues that the woman may be afraid to raise in front of her husband, such as what would happen to her should he die, or should they get divorced.
Botha says that when you get married, you should decide which partner will be the main caregiver if you have children. Whoever it is – usually the woman – will give up some of his or her earning potential, and should be compensated in the event of divorce. The caregiver will most likely also be the one looking after the children after a divorce. The couple’s ante-nuptial contract should therefore reflect that the primary caregiver gets a bigger percentage – for example, 65 percent – of the assets on divorce, she says.
If this is not written into your ante-nuptial contract, the two of you should save more for the partner looking after the children, Botha says.
If you stay married, you do not have to worry about income when your partner dies. The tax burden is spread over two people, which may allow for a lower overall tax rate.
FACTS AND FIGURES
Women currently control 27 percent of the world total wealth (created wealth, inherited wealth or spouse’s wealth that they manage) and by 2028 will control 75 percent of all discretionary spending worldwide, Heidi Dreyer, the head of corporate sales at Prudential Investment Managers, told a recent Women in Finance network breakfast in Cape Town.
Already in South Africa, women control more than 50 percent of discretionary spending, she says.
Dreyer says men born between 1945 and 1964, known as baby boomers, are the first generation to have accumulated significant amounts of wealth, and this wealth will be transferred typically to their spouses and then on to their children in what will be the biggest inter-generational transfer of wealth.
Dreyer says that data from the United States shows that, on average, men still earn more than women, but in the 20-to-29 year age group, women are out-earning their male counterparts by 20 percent in major metropolitan areas such as New York, Los Angeles, Chicago, Boston, Dallas and Minneapolis.
It is expected that, in the US, by 2028 the average earnings of women will exceed that of men.
The number of women graduating with college degrees overtook the number of men graduating with degrees in 1981 and it is projected that by 2021 US colleges will produce 148 women graduates for every 100 men graduates, Dreyer says. In at least 12 other countries including Australia, Germany, France, Britain, Finland, Spain and Canada, women graduates have surpassed the number of men graduates.
The trends in education and earnings that have emerged in the US over the past 30 to 40 years will happen in developing markets at a much faster pace, Dreyer says.
Today’s young women are entering the labour force at higher rates and education levels than any generation before them, she says.